Mr Musk agreed in April to buy Twitter but said last week he intended to back out of the deal. To force Mr. Musk to honor the buyout agreement, Twitter sued him in Chancery Court in Delaware. The court will determine whether it remains on the hook for the purchase or whether Twitter breached its obligation to provide Mr. Musk with data he requested, giving him the right to exit. “Musk refuses to honor his obligations to Twitter and its shareholders because the agreement he signed no longer serves his personal interests,” the company said in the lawsuit. “Musk apparently believes that — unlike any other party subject to Delaware contract law — he is free to change his mind, wipe out the company, disrupt its operations, destroy shareholder value, and walk away.” At the heart of the case is the issue of disclosure. To end the deal, Mr. Musk claimed that Twitter banned information about spam bots, also known as fake accounts, from being delivered to the platform. He repeatedly said he didn’t believe the company’s public claims that about 5 percent of its active users are bots. Twitter deliberately misled the public, he said, and blocked his efforts to get more information about how it represents the data. Mr Musk has also taken aim at Twitter for failing to warn before it recently fired two key executives. But Mr. Musk signed a legally binding agreement with Twitter. And in that contract, Twitter included a specific performance clause that allows it to sue to force the deal as long as the debt the billionaire has covered for the buyout is in place. In a letter to Mr Musk’s lawyers on Sunday, Twitter’s lawyers said its move to end the deal was “void and unfair” and that Mr Musk had “knowingly, willfully, willfully and materially breached” the his agreement to buy the company. The company has said it is confident in its figures on spam accounts and is using spam experts to check the number and ensure its accuracy. In its lawsuit, Twitter argued that Mr. Musk, who also heads the Tesla carmaker, wanted out of the deal because of changes in the stock market that affected his wealth. (Tesla’s stock has fallen in recent months.) Twitter said the billionaire used his complaints about the bots as a pretext to get out of the deal. Mr. Musk also broke an agreement not to publicly insult Twitter executives and “surreptitiously abandoned” his efforts to secure debt financing for the deal, the suit said. In doing so, the social media company said it breached its obligations to use “reasonably best efforts” to complete a deal. “Musk wanted an escape,” the company said. “But the merger agreement left him little room.” Mr. Musk did not immediately respond to a request for comment. Sean Edgett, Twitter’s general counsel, informed employees of the lawsuit in an internal memo on Tuesday and said the company had “filed a motion for a speedy trial with the complaint, asking that the case go to trial in September because it is extremely important. to quickly resolve this issue.” The New York Times got the memo. Twitter is pursuing a four-day trial this September. The deal has an October 24 deadline to complete. If the transaction is still awaiting regulatory approval at that time, Mr. Musk and Twitter will have another six months to close it. But Mr. Musk’s threat to quit could bring Twitter back to the negotiating table, allowing the billionaire to buy the company at a discount. The two sides could also be settled. Or they could pay a $1 billion break-up fee and exit, an option allowed only under certain circumstances, such as if Mr. Musk’s funding collapsed. If Mr. Musk successfully signs off from Twitter, it could be disastrous for the company. Its stock has fallen more than 35 percent below its offer of $54.20 a share. Twitter’s business has also deteriorated in recent months. In May, Parag Agrawal, Twitter’s chief executive, said in a memo to employees that the company fell short of its business and financial goals. Now that Twitter has sued, Mr Musk and his lawyers are expected to respond. While the timeline after that depends on many factors, the company and Mr. Musk will likely be summoned to a hearing in Delaware and go through the discovery process, with both sides uncovering evidence they believe is relevant to the case. The case may then proceed to trial, although there is a chance that the judge assigned to the case will reject Mr. Musk’s efforts to recuse himself. If the lawsuit goes to trial, the judge will decide whether Twitter’s disclosures were insufficient and constituted material damage to the agreement. In the past, Delaware’s Chancery Court has blocked companies from trying to back out of the deals. In 2001, for example, when Tyson Foods tried to back out of its acquisition of meatpacking company IBP, a court ruled that Tyson had to honor the deal. In cases where the court allowed the buyers to leave, it asked them to pay compensation. According to most readings of Twitter’s contract with Mr. Musk, damages would be limited to $1 billion. Twitter and Mr. Musk have assembled legal teams to fight it out. Leading Twitter’s efforts in Delaware is William Savitt, an attorney at Wachtell, Lipton, Rosen & Katz. Wachtell Lipton is famous, among other things, for developing legal tactics to protect companies from hostile buyers, such as the so-called poison pill that Twitter initially put in place to defend itself from Mr. Musk. Mr. Savitt has experience before the Delaware Chancery Court and previously defended companies against the likes of Carl Icahn and Pershing Square, the investment firm run by billionaire William Ackman. But Mr. Musk is unlike any other corporate raider who has come before him, making him a particularly complicated adversary. Mr. Musk’s legal team includes his personal attorney, Alex Spiro, as well as attorneys from Skadden, Arps, Slate, Meagher & Flom. Skadden is a corporate law firm with plenty of experience arguing cases before Delaware court, including luxury giant LVMH Moët Hennessy Louis Vuitton’s attempt to scuttle its $16 billion deal to buy Tiffany & Company. Skadden’s client, LVMH, eventually cut about $420 million off its purchase price. This is a developing story. Check back for updates. Mike Isaac contributed reporting.
